Business Rescue - Planning Deliverables

We treat your business like our own, and we go
beyond what is expected, what is legally required, but what we consider
necessary! We invite scrutiny, challenge and comparison!

Our rescue planning must cater for the activities required in analysis and quantification of benefit, but also
those behaviors and attitudes that foster transparency, and
communication. We must remove every excuse and any likely reason for a
creditor to not support it. Hopefully, you see the wisdom in engaging with your Business Rescue
Practitioner well in advance after going through the high level process walk-through, to
re-iterate:

You will only be allowed to follow the Business Rescue Process,
if you are not only financially distressed, but also have convincing
prospects of rescue, which you require a Business rescue Practitioner
to confirm in principle before your filing

The court will grant your business 25 working days to formulate
the Business Rescue Plan, and also to present it for Creditor approval,
if you are unprepared, 25 days is very short and will increase your
chances of plan rejection and hence liquidation, substantially.
Control the process, control the timing, be prepared!

Your Business Rescue Practitioner will help motivate a period
well in excess of 25 days, if you engage them early enough for proper
preparation to happen.

What hurdles must the Business Rescue Plan overcome to be accepted?

The company's creditors can expect a better return than
that expected from the immediate liquidation of the company. However,
in a liquidation claim, a creditor’s rate of return carries less risk than
that of a rescue, this needs managing, carefully. It is a non-event if
WACC, discount rates, NPV or IRR preferences and inputs are clear from
the start.

Jobs are saved and fewer employees are impacted than in the
event of liquidation.

The company has a realistic chance of returning to being a
viable contributor to the economy.

The threshold of creditors voting in support is met.

In order to accomplish this we need the business rescue plan to deliver
a lot - more than the expected minimum prescribed!.

What can you expect from a Spark Business Rescue Plan

Our plan is constructed to meet the following criteria (test criteria)

Does our business rescue plan show how we have reviewed all of
the prior analysis tasks for quality and feasibility?

Does our business rescue plan reflect the additional tasks we
consider necessary for a rescue analysis?

Does our business plan clearly and without ambiguity
articulate the specific rescue actions with quantified benefits
and risks?

Can our business plan be used as source document for
contractually binding obligations for all parties?

Have we used the evolving business rescue plan throughout the process as a tool for
transparent communication?

As the business rescue plan evolves are all stakeholders aware of
its content, and able to comment and provide direction?

Has the business plan documented concerns raised, especially
those of stakeholders voting rights?

Has the plan documented how these concerns and issues have been
addressed?

Are all risks to non delivery on the business rescue plan documented, tracked and owned? ie/ Retention of Key Staff,
(this is an example of a typical entry into the Risk log which forms
part of the plan)

Have we documented all our assumptions and reached consensus and
alignment on these well before the business plan is formally presented
and voted upon?

Have we used tools to negate subjectivity on key probabilities, such as a Monte Carlo analysis for either NPV or IRR calcs?

If this was our own family owned business, would we treat is differently in any way?

Deliverables List for Business Rescue Plan

Use this list to be clear on what the final business rescue plan will
contain, and use this to assess the rigor and quality of business
analysis and rescue solutions considered.

Business Rescue Planning Scope & Deliverables

Section 150 of Companies ACT

Deliverable & Content of Rescue Plan

Prescribed By Act

Spark! meets or exceeds legal requirements

Explanation

Part A

Background

i

a complete list of all the material assets of the company, as well as an
indication as to which assets were held as security by creditors when the
business rescue proceedings began

Y

meets

ii

a complete list of the creditors of the company when the business rescue
proceedings began, as well as an indication as to which creditors would
qualify as secured, statutory preferent and concurrent in terms of the laws
of insolvency, and an indication of which of the creditors have proven
their claim

Y

meets

iii

the expected repayment that would be received by a creditors, in their
specific classes, if the company were to be placed in liquidation; (NPV, cents to the Rand, and total)

Y

exceeding

This
source of dispute can be managed if clarity is sought and expectations
managed properly. We devote a whole morning to a session between the
business and its classes of creditors where we deal with the following
types of issues:
a) time value of money, we all know that R1000 today it not the same as
R1000 in 12 months time less well understood is that the value of
this R1000 after 12 months will be different for Creditor A and
Creditor B.
b) NPV inputs, the company's cost of capital is used , as
we sum the discounted cash flows minus the original investment.
(ant contribution to the Rescue Plan Cost). The cost of capital is the
weighted sum of its own Cost of Equity and Debt, obviously different for
each creditor
c) IRR - The internal rate of return on a project is the rate of
return at which the projects NPV equals zero. We need to know each
creditor's "hurdle rate", the minimum rate of return they will accept
for a project. (which the rescue plan is for them)
d) etc, etc

iv

a complete list of the holders of the company’s issued securities;

Y

meets

vi

Remuneration and incentives of the Business Rescue Practitioner

Y

higher risk appetite for performance and risk based reward

Any proposal made informally by a creditor of the company.

Y

meets

Part B

Proposals

i

the nature and duration of any moratorium for which the business rescue
plan makes provision;

Y

meets

To
be clear, it is not that time is frozen here! The outstanding debt will
incur cumulative interest charges on any outstanding capital amounts,
if so structured. The business mere has no obligation to service this
debt during this period.

ii

the extent to which the company is to be released from the payment of its
debts, and the extent to which any debt is proposed to be converted to
equity in the company, or another company;

Y

meets

If
this is an option explored, then the stakeholder management and open
communication must be stressed. The various valuation techniques -
discounted cash flows (preferable) to using multiples (censure
suggested), can lead to stalemates and lost consensus!

iii

the ongoing role of the company, and the treatment of any existing
agreements -ie contracts etc

Y

exceeds

We
conduct an operating model review, which will focus on what the core
business functions are, many businesses run their own call centers -
without expertise and without economies of scale. most times this is
not a core-function and can be done better and cheaper elsewhere, there
are many Process Management companies following in Accenture's model
adopted 15 years gap, they

iv

the fixed assets of the company that could be available to pay creditors’
claims in terms of the business rescue plan; and

Y

meets

v

the order of preference in which the proceeds of property will be applied
to pay creditors if the business rescue plan is adopted;

Y

meets

vi

the benefits of adopting the business rescue plan as opposed to the
benefits that would be received by creditors if the company were to be
placed in liquidation;

Y

exceeds

Any
result is dependent on the Quantum of the benefit, the probability of
success and quality of the initial analysis. We strive to be more
thorough and accurate in what is assessed as viable, easier to attain
etc.

vii

the effect that the business rescue plan will have on the holders of each
class of the company’s issued securities

Y

meets

Balance Sheet Optimization

Not explicitly

Always

This covers items as trivial as Unused supplies or services which are often recorded as assets, while the used or
consumed parts of the supplies or services are recorded as expenses.
It should also cover any Risk Capital if thesis FS and the investment
assets used within the liquidity definition and guidelines - we have
seen instances of 80% investment in highly liquid but low return cash,
this is an opportunity cost that if reviewed adds low impact benefit,
with more certainty than other actions. It should also assess non-core
assets, redundancy and under-performing assets.

Income Statement Austerity

Not explicitly

Always

This involves linking the Financial
lines to operational drivers of their value, which we then must ensure
are owned, have targets set, with tracking and consequences/incentives
built in. The big focus will be Operating Cash Cycles, which
reviews

for
what period of time is the company's money tied up in
inventory and other current assets before customers pay for the end
product or services? measured in days.

the amount
of cash is needed to finance each unit of sales and what is the amount
of
cash generated by each ZAR of sales? measured in Rands

Lean - Wasteful Practices and Inefficiencies

Not explicitly

Always

The days of the OCC are a function of
Processes across departments, and almost always this means diluted
ownership of the overall process, there is almost always waste. It is
not unusual to find improvement to the Cash Cycle of 30% days
reduction and another 20% on terms of the quantity of cash
required.There are many sources and causes of waste, over
production and excessive inventories discussed above, rework from
poor quality, process waiting times, excessive hand-offs,
value-less process steps (quality checking the quality checker!),
transport etc. If you brought in a team of Toyota Black Belt process
engineers, I would wager that they would not identify any waste removal
opportunities that the business did not already know about!!!

Value Based Management

Not explicitly

Always

All about removing either value
destroying channels, customers or products -along with associated
variable costs. See week1 pages and embedded training documentation on
this.

Powerful ideas for aligning incentives and sharing risk.

No

Always

When last did you hear of Everyone in
the firm shifting to a 4 day week? with an immediate 20% reduction in
staff costs, with no retrenchment costs? One of the main risks
faced is the lack of productivity in the demoralized workforce. Good
and talented people will go because they can, less talented will
remain, and so the detach spiral starts. Why not build camaraderie, share
the pain, without inflicting all of it on fewer people? Tie this into
the normal tactics employed and there's a great benefit, reduced risk
and an instrument for culture change.there are many more examples of this kind of thinking available to us, and under-utilized.

Part C

Assumptions and Conditions

1-aa

the conditions that must be satisfied, if any, for the
business rescue plan to—
(aa) come into operation

Y

meets

1-bb

the conditions that must be satisfied, if any, for the
business rescue plan to—
(bb) e fully implemented

Y

meets

ii

the effect, if any, that the business rescue plan contemplates on the
number of employees, and their terms and conditions of employment;

Y

exceeds

iii

the circumstances in which the business rescue plan will end;

Y

meets

iv

a projected—
(aa) balance sheet for the company;

Y

exceeds

iv

a projected— (bb) statement of income and expenses for the ensuing three years,

Y

exceeds

must include a notice of any material assumptions on which the projections
are based; and
(b) may include alternative projections based on varying assumptions and
contingencies

exceeds

we
adopt a risk management approach, which documents assumptions, defines
red flags and associated actions, assigns ownership and ensures better
response to risks and better control of disruption (but not the
removal unfortunately|)

Statements of accuracy and completion of document

meets

To get a better idea of some of the immediate actions we'd
take on a Business Rescue, please refer to this link: skeleton rescue
planning Week 1